Finding the Bucks, or Making Them

Earnings season is underway, and I think it’s clear that the results are generally positive and probably more so than expected.  That raises again the possibility that the recovery is proceeding more quickly than economists expected, and another sign that may be true is that the major parties in the US now seem to be vying to take credit for what will happen.  You can’t be responsible for good stuff by doing nothing, so you have to be cooperative to the extent needed to get at least something done.  Later then, you can argue over who gets the credit!

The State of the Union address was a typically political instrument, and so of course were the responses.  While I think it’s clear that the President is right in his assertion that America has to become more competitive in the core production of stuff instead of focusing on mowing each other’s lawns or earning money through financial frauds, that’s been clear all along.  What’s not clear is how to make it happen in a society that’s becoming more focused on entertaining itself than on getting anything done or learning anything.  The shift from search to social networking in terms of time spent online is a reflection of this; how much can you learn by Tweeting?  In a societal-good sense, not much.

In networking, Cisco has again indicated that what it calls “ambient video” (meaning user-generated content) is going to put enormous demands on the network of the future.  But like the political process, Cisco’s light on realistic solutions to the problem.  Sure you can argue that to fix traffic congestion you buy routers (a logical strategy for a router vendor to propose) but the real problem again isn’t what it appears to be on the surface.  We need to know how to pay for the routers, and ambient video has the smallest monetization potential of all types of video because nobody is prepared to spend much to advertise in that kind of material.  Our research says that only about 0.04% of all the video uploaded by consumers has any potential for ad monetization, and even with that there’s the question of how the ad money ever flows to the network operator to pay for those routers.  Absent a solution, the only near-term measure operators can adopt is to put price pressure on the gear to improve ROI even when the “R” part isn’t growing.

Up in the service layer, all’s not rosy.  Google is reportedly unhappy with the sales of Android apps even though developers are reportedly more favorable about the Android platform.  The problem Google has is that there are simply too many Android versions that are developing as the platform struggles to match features with Apple.  Since Apple can monetize its iOS better and faster, it’s able to put more back into development, and since it’s setting the feature standard for the space it can choose its fights.  I think that Android’s current problems are transitory; by the end of 2011 I believe that Version 3 will be out and widely accepted, and that will create a much more stable framework for development.  However, another important element in the picture is just what Google will do with its HTML5 “URL store” concept and Chrome OS.  A better way to create the platform APIs to allow features to be either device-resident or hosted might offer Android some real benefits.

Google has taken an important step in another area, allowing users to port mobile numbers to Google Voice.  This means that the features of Voice in call management could be available to mobile users more easily, and that in turn would accelerate the disintermediation of operator voice services from future feature opportunities.  The capability isn’t offered for wireline voice because of issues with E911, we’re told.  Operators will need to address this with their own set of richer voice features, but if they try to do that inside the traditional IMS envelope they may face price/cost problems that will work strongly in Google’s favor.  That means they’d have to block competing voice apps, and even the rumor that one operator plans to block Skype has been enough to create an FCC complaint under the new neutrality rules.

Earnings season will continue for a month or so now, and I expect we’ll have other comments and predictions based on the numbers that emerge.  I also think we’ll be seeing signs of how Apple and Google will operate in their new age of management, and that may be the most critical issue for the industry right now.

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